Wednesday, June 5, 2013

The tug-of-war over gold

The Commodity Futures Trading Commission (CFTC)
weekly commitment of traders report for the week ending May 21 revealed a heavy
bearish bias against gold on the part of speculative traders. According to ETF Daily News, “Large
speculators’ net long positions in gold futures and options continued falling
to lows not seen in several years,” adding that “Net long gold positions for
non-commercial traders such as hedge funds are now at the lowest level since
November 2008.”

By contrast, the commercial interests – which are
considered the “smart money” in the gold market – have built up a large net
long position in gold. According to the
CFTC’s latest report, commercials have increased their net position in gold by
over 185,000 contracts, which is the highest level of bullishness since October
2008.

The International Monetary Fund, in a May 27
report, revealed that central banks in
emerging countries were big buyers of gold during the recent decline. The IMF report listed Russia, Turkey,
Belarus, Kazakhstan, Azerbaijan and Greece as buyers during the past few
months. ”We expect the trend of central
bank buying to continue,” Alexandra Knight, an economist at National Australia
Bank, told Bloomberg. “The longer term trend for central
banks to increase gold reserves remains intact.”

The sentiment backdrop for a confirmed bottom is
certainly there; it remains only for gold to add to its recent strength by
closing at least one more day higher above the May 30 close to show that buyers
have taken control of the immediate-term trend.
Even more importantly, however, gold should close above the 30-day MA to
prove that buyers have completely regained control from sellers, as discussed
previously. Note that gold is currently
testing the resistance at the 30-day MA.